LONDON, Nov 21 (Reuters) - European stocks chalked up a
third straight session of gains on Wednesday as buyers snapped
up recent laggards and positioned for a positive outcome to
negotiations over aid to Greece.

Shares in telecoms group KPN bounced 6.8 percent
from a 10-year low in volume twice the 90-day average, boosted
by trader speculation about consolidation in the German telecoms
sector.

It was the top riser on the pan-European FTSEurofirst 300
index, which closed 0.3 percent higher at 1,097.43
points, albeit in thin volume of 82 percent the average as
Thursday's Thanksgiving market holiday in the United States
approached.

Stocks turned higher in mid-morning trade on signs
politicians were stepping up efforts to reach a deal to unlock
financial help for debt-laden Greece on Monday, after they
failed to do so on Tuesday.

"Our assumption over the next six months is, on any
significant pullback, to buy Europe," Bill O'Neill, chief
investment officer for Europe, the Middle East and Africa at
Merrill Lynch Wealth Management, said.

"I can see 12-15 percent total returns for European equities
next year, but that of course depends on nothing untoward
happening in the euro zone and the integration process
continuing."

O'Neill estimated cash injections by central banks, a
pick-up in global growth and more stability in the euro zone
would boost European equities in 2013 as investors switch out of
government and corporate bonds, where yields are falling.

The premium investors demand to hold equities over
investment grade credit, a measure of the relative
attractiveness of equities, is at a 25-year high of around 4
percent, according to Merrill Lynch data.

O'Neill recommended buying shares with a high level of
volatility, or beta, such as banks and focusing on stocks that
are offering cheap valuations in historical and relative terms,
a trading strategy known as value investing.

VOLATILITY FALLS

In a further sign of the improving market sentiment
surrounding the euro zone, the Euro STOXX 50 volatility index
, which measures option prices on euro zone blue chips,
fell 4.9 percent to a new eight-month low of 17.85.

The underlying Euro STOXX 50 index index rose
0.4 percent to 2,519.68 points, stuck within a range comprised
between 2,400 and 2,610 - this year's top - that has trapped the
index since September.

Loic de Galzain, a technical analyst at Societe Generale,
expected the index to break out of the channel next month,
tracking a rise on Wall Street, although it could fall again
before that.

"Now we'll probably have a consolidation toward the bottom
of the channel, but in December we'll break above 2,600," he
said. "My target for the spring is (the 2011 high at) 3,000."